Uhuru Signs Interests Capping Bill

[Nefertiti]

Very impressive and compelling plain English compared to hk's economic hacks.

[RV Pundit]

I think HK long standing view is that the banking/financial sector have also done lots of great things -lots of innovation- we are probably at bar with second world or even developed country - when it comes to financial sector maturity.Fin accessibility & inclusion has been sorted out - now nearly everyone has a bank account. The vexing issues has remained - high interest rate. We need to find ways & means to get cheaper & easily available credit.

Anyway I think uhuru should treat this as experimentation policy - if it doesn't work - roll it back soon - if it works - that would be to quote Kerrow - his signature legacy.

Very impressive and compelling plain English compared to hk's economic hacks.

[hk]

Very impressive and compelling plain English compared to hk's economic hacks.

I dont know whether I am the hack or David ndii who I quoted . Billow kerrow put forward compelling evidence on return on capital for local banks and their out sized margins. Bottomline if the CBK is borrowing at 15% don't expect a regular mwananchi to get a loan for 14.5% unless maybe the market is telling us that the CBR will go up soon. I think we can all agree in a perfect world price caps aren't the best since the government under pressure can cap prices distorting the market which can lead to shortages.

Even at 14.5% that's a little bit too high. So really Billow kerrow should tell us how to lower the CBR from 10% to about 6% just about where the inflation rate is. In my humble opinion one way is for the CBK to start borrowing from regular citizen via mobile money by initiating the M-akiba.   

[hk]

The capping of interest spread is affecting credit availability. This doesn't portends well for the economy especially the riskier borrowers http://www.businessdailyafrica.com/Private-sector-borrowing-slows-down-to-10-year-low/539546-3466874-p4d82hz/index.html . The treasury has been dithering on M-akiba which is the one of the possible  market based solution to lowering of interest rates. Meanwhile the government is having trouble raising 30b going by last week under subscription probably buyers trying to push the government to pay better rates. https://www.centralbank.go.ke//uploads/historical_treasury_bond_results/739138275_FXD3-2007-15%20&%20FXD1-2008-20%20Dated%2028.11.2016.pdf .   

[RV Pundit]

It's too early to make a judgement call. I think most banks are re-configuring their lending with new reality. GoK should stick with this for next 1 or 2yrs. M-Akiba should be going live anytime soon. But like we said it won't be an quick up-take. Mwananchi need to be sure of the ability to cash out their m-akiba.

The capping of interest spread is affecting credit availability. This doesn't portends well for the economy especially the riskier borrowers http://www.businessdailyafrica.com/Private-sector-borrowing-slows-down-to-10-year-low/539546-3466874-p4d82hz/index.html . The treasury has been dithering on M-akiba which is the one of the possible  market based solution to lowering of interest rates. Meanwhile the government is having trouble raising 30b going by last week under subscription probably buyers trying to push the government to pay better rates. https://www.centralbank.go.ke//uploads/historical_treasury_bond_results/739138275_FXD3-2007-15%20&%20FXD1-2008-20%20Dated%2028.11.2016.pdf .   

[hk]

Finally M-akiba to be launched on thursday https://www.standardmedia.co.ke/business/article/2001233514/treasury-to-launch-sh5-billion-mobile-traded-bond-on-thursday . If this is true , it will be one of the hallmarks of uhuruto administration. It'll finally be possible to diversify government borrowing from banks and insurance companies. This will eventually lower the interest rates (scrap the interest spread) and finally open up the credit market to more companies especially small ones. 

[RV Pundit]

Yeap the democratisation of borrowing...

Finally M-akiba to be launched on thursday https://www.standardmedia.co.ke/business/article/2001233514/treasury-to-launch-sh5-billion-mobile-traded-bond-on-thursday . If this is true , it will be one of the hallmarks of uhuruto administration. It'll finally be possible to diversify government borrowing from banks and insurance companies. This will eventually lower the interest rates (scrap the interest spread) and finally open up the credit market to more companies especially small ones. 

[Omollo]

Must the government borrow from the poor?

Yeap the democratisation of borrowing...

Finally M-akiba to be launched on thursday https://www.standardmedia.co.ke/business/article/2001233514/treasury-to-launch-sh5-billion-mobile-traded-bond-on-thursday . If this is true , it will be one of the hallmarks of uhuruto administration. It'll finally be possible to diversify government borrowing from banks and insurance companies. This will eventually lower the interest rates (scrap the interest spread) and finally open up the credit market to more companies especially small ones. 

[RV Pundit]

Must the poor lend to gov. Yeah if they can afford it. Gov offers the best saving rates. If the poor want to save something for a rainy day - best park it in m-Akiba - than under the mattress or in a bank.

Must the government borrow from the poor?

[Omollo]

I am not comfortable with this. What if the government defaults?

Must the poor lend to gov. Yeah if they can afford it. Gov offers the best saving rates. If the poor want to save something for a rainy day - best park it in m-Akiba - than under the mattress or in a bank.

Must the government borrow from the poor?

[Empedocles]

I am not comfortable with this. What if the government defaults?

Must the poor lend to gov. Yeah if they can afford it. Gov offers the best saving rates. If the poor want to save something for a rainy day - best park it in m-Akiba - than under the mattress or in a bank.

Must the government borrow from the poor?

Looks like the gava is working really hard getting as much money as possible:

Kenya borrows total of $1.55 billion in three syndicated loans
Tue Mar 21, 2017

NAIROBI (Reuters) - Kenya borrowed $800 million in a syndicated loan from four international commercial lenders, part of a package totalling $1.55 billion.

The country also got a $500 million syndicated loan with Cairo-based African Import Export Bank (Afreximbank) and the Trade Development Bank (TDB), Afreximbank said. Another $250 million syndicated loan was agreed earlier with TDB.

"The facility, for which Afreximbank and TDB acted as joint mandated lead arrangers, is part of a $1.55 billion debt package of three facilities being arranged and raised in parallel," Afreximbank said in a statement issued on Monday.

Kenya had set out to raise 150 billion shillings ($1.46 billion), partly to plug a fiscal deficit equal to 9.7 percent of gross domestic product in its budget for the fiscal year to June 2017.

President Uhuru Kenyatta, who faces re-election in August, dismissed criticism last week of his accelerated borrowing, saying the money was funding development .

In January, the Nairobi government picked Standard Chartered, Standard Bank, Citi and Rand Merchant Bank to lead the $800 million syndicated loan.

"We signed and have already drawn down" the money, Kamau Thugge, principal secretary at the ministry of finance, told Reuters.

The various tranches of the total loans of $1.55 billion comes with different maturities of two to 10 years, Afreximbank said.

These idiots seem to want to bankrupt the country.

[hk]

I am not comfortable with this. What if the government defaults?

Must the poor lend to gov. Yeah if they can afford it. Gov offers the best saving rates. If the poor want to save something for a rainy day - best park it in m-Akiba - than under the mattress or in a bank.

Must the government borrow from the poor?

Looks like the gava is working really hard getting as much money as possible:

Kenya borrows total of $1.55 billion in three syndicated loans
Tue Mar 21, 2017

NAIROBI (Reuters) - Kenya borrowed $800 million in a syndicated loan from four international commercial lenders, part of a package totalling $1.55 billion.

The country also got a $500 million syndicated loan with Cairo-based African Import Export Bank (Afreximbank) and the Trade Development Bank (TDB), Afreximbank said. Another $250 million syndicated loan was agreed earlier with TDB.

"The facility, for which Afreximbank and TDB acted as joint mandated lead arrangers, is part of a $1.55 billion debt package of three facilities being arranged and raised in parallel," Afreximbank said in a statement issued on Monday.

Kenya had set out to raise 150 billion shillings ($1.46 billion), partly to plug a fiscal deficit equal to 9.7 percent of gross domestic product in its budget for the fiscal year to June 2017.

President Uhuru Kenyatta, who faces re-election in August, dismissed criticism last week of his accelerated borrowing, saying the money was funding development .

In January, the Nairobi government picked Standard Chartered, Standard Bank, Citi and Rand Merchant Bank to lead the $800 million syndicated loan.

"We signed and have already drawn down" the money, Kamau Thugge, principal secretary at the ministry of finance, told Reuters.

The various tranches of the total loans of $1.55 billion comes with different maturities of two to 10 years, Afreximbank said.

These idiots seem to want to bankrupt the country.

The country isn't getting bankrupt . Kenya is $70b economy, if in 2016 economy grew at pace of 5.5% that's about $2.4b added to the economy, if out of that $2.4b the government collect tax of 16% only(Vat) that's about $300m . Clearly the government can pay back comfortably. The loan tranches are 2yr to 10yrs.
What I have problem with is our low absorption of development funds. And inflated prices of the projects due to sometimes ridiculous high prices of land for example. But at least now there's capping of how much the government can pay for land.
Kisero has it right here on M-akiba http://www.businessdailyafrica.com/analysis/Why-M-Akiba-is-a-game-changer/539548-3861854-isl8wr/index.html . The late 1890 and early 1900 america  issued railway bonds that  built and opened up america. M-akiba as a ring fenced infrastructure bond can be used to build crucial infrastructure in kenya.

[MOON Ki]

The country isn't getting bankrupt . Kenya is $70b economy, if in 2016 economy grew at pace of 5.5% that's about $2.4b added to the economy, if out of that $2.4b the government collect tax of 16% only(Vat) that's about $300m . Clearly the government can pay back comfortably.

(1) Does the government have expenditures other than loan repayments?

(2) Just a couple of years ago, the government had to repay a similar syndicated loan.   How did it comfortably do that?   From tax revenues?   

[hk]

The country isn't getting bankrupt . Kenya is $70b economy, if in 2016 economy grew at pace of 5.5% that's about $2.4b added to the economy, if out of that $2.4b the government collect tax of 16% only(Vat) that's about $300m . Clearly the government can pay back comfortably.

(1) Does the government have expenditures other than loan repayments?

(2) Just a couple of years ago, the government had to repay a similar syndicated loan.   How did it comfortably do that?   From tax revenues?

1. Of course it does, Kra collected $12b last year . Government expenditure doesn't necessarily grow at the same rate of GDP growth.
2. It paid with euro bond proceeds. The syndicate loan was of much higher interest and was paid off using Euro bonds. Treasury rolls over debt all the time by issuing new debt to pay for maturing debt so long as it has access to debt markets. What would concern me is what the funds are used for and the interest on the debt if its lower than 10%(CBR)its ok.

[MOON Ki]

1. Of course it does, Kra collected $12b last year . Government expenditure doesn't necessarily grow at the same rate of GDP growth.
2. It paid with euro bond proceeds. The syndicate loan was of much higher interest and was paid off using Euro bonds. Treasury rolls over debt all the time by issuing new debt to pay for maturing debt so long as it has access to debt markets. What would concern me is what the funds are used for and the interest on the debt if its lower than 10%(CBR)its ok.

I see.   Here's where I got lost: Presumably your $300m that will be used to comfortably pay debts is part of total KRA money.   I also read that:

Kenya had set out to raise 150 billion shillings ($1.46 billion), partly to plug a fiscal deficit equal to 9.7 percent of gross domestic product in its budget for the fiscal year to June 2017.

My understanding of "deficit" is that expenditure exceeds income.

I see your point about the payment with Eurobonds.      Mine was that the government paid debt off by taking on more and new debt---not by collecting tax of 16% only and using that to comfortably pay.

[hk]

1. Of course it does, Kra collected $12b last year . Government expenditure doesn't necessarily grow at the same rate of GDP growth.
2. It paid with euro bond proceeds. The syndicate loan was of much higher interest and was paid off using Euro bonds. Treasury rolls over debt all the time by issuing new debt to pay for maturing debt so long as it has access to debt markets. What would concern me is what the funds are used for and the interest on the debt if its lower than 10%(CBR)its ok.

I see.   Here's where I got lost: Presumably your $300m that will be used to comfortably pay debts is part of total KRA money.   I also read that:

Kenya had set out to raise 150 billion shillings ($1.46 billion), partly to plug a fiscal deficit equal to 9.7 percent of gross domestic product in its budget for the fiscal year to June 2017.

My understanding of "deficit" is that expenditure exceeds income.

I see your point about the payment with Eurobonds.      Mine was that the government paid debt off by taking on more and new debt---not by collecting tax of 16% only and using that to comfortably pay.

Deficit of a fiscal budget is "budgeted" expenditure(recurrent and development minus collected revenue(excluding borrowed money). A deficit in our case means the government intends to spend more money than its collecting. And most of deficit financing is for development which should result in growth that lead to more tax collection to pay that debt or cheaper refinancing of that debt.

[MOON Ki]

Deficit of a fiscal budget is "budgeted" expenditure(recurrent and development minus collected revenue(excluding borrowed money). A deficit in our case means the government intends to spend more money than its collecting. And most of deficit financing is for development which should result in growth that lead to more tax collection to pay that debt or cheaper refinancing of that debt.

I see your point.   Mine is that  borrowing to "plug a fiscal deficit" and "spend more money than its collecting" do not suggest money lying around, to be used to comfortably pay off debts.

Funding development which should lead to .... sounds very good indeed.   Would you happen to know what development  will be funded by this one?   Come to think of it, would you happen to know what development was funded by the bulk of Eurobond money and how it has led to ...?

[RV Pundit]

It enough to know the economy grew by 6% and tax collection by 15% (or about). Those are impressive figures. Of course we could double that growth - and that should be our focus. And I believe we can double that growth by borrowing more to build infrastructure.

I see your point.   Mine is that  borrowing to "plug a fiscal deficit" and "spend more money than its collecting" do not suggest money lying around, to be used to comfortably pay off debts.

Funding development which should lead to .... sounds very good indeed.   Would you happen to know what development  will be funded by this one?   Come to think of it, would you happen to know what development was funded by the bulk of Eurobond money and how it has led to ...?